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The first advance estimates pegs real GDP growth at 7.3% in FY24, which is even better than 7.2% in FY23. However improving inflationary scenario led to a lower deflator (1%), eventually implying a lower nominal GDP growth of 8.9 vs budgeted growth of 10.5. NSO’s growth estimates imply a sluggish H2, which is most notable in the performance of Industrial and agricultural activities even as Services performance is relatively robust. Government consumption is expected to remain weak while investments pickup in H2. Private consumption continues to be a cause of concern even though there are early signs of improvement in rural consumption. We build-in realistic growth expectation in the range of 6.7% to 6.9% for the upcoming fiscal. NSO’s Lower nominal GDP expectation adds upside risk to government’s FD target of 5.9% calling for spending curtailment to the extent of INR 370bn.

* NSO paints an optimistic picture for FY24: India’s real GDP is expected to grow at a robust pace of 7.3% in FY24 as per the First Advanced Estimates (FAE) released by the National Statistical Office (NSO). Going by the estimate, FY24 is expected to be better than 7.2% growth in FY23. NSO’s estimate is even higher than the RBI’s optimistic projection of 7%. But NSO’s estimate implies slight moderation (but robust) 7% growth in H2FY24 vs 7.7% in the first half. Real GVA growth is expected to moderate to 6.9% in FY24 vs 7% in the previous year, this implies a sluggish H2 at 6.2% vs 7.6% in H1. On a sectoral basis, most notable moderation is expected in industry (6.7% in H2 vs 9.3% in H1) as growth in utilities (10.3% in H2 vs 6.4% in H1) did not compensate for the sluggishness in manufacturing (3.9% in H2 vs 9.3% in H1). Mining and construction activities are expected to remain robust in second half as well (Ex 1). While moderation in Agricultural growth is expected to be steeper (1.4% in H2 vs 2.4% in H1). Service performance (7.5% in H2 vs 8% in H1) is relatively robust, led by marginal moderation in public sector as well as the finance and Real estate activities while trade, hotel etc. moderates slightly.

* Consumption a cause of concern; Trade balance expected to improve: Going by the NSO’s estimates, private consumption is likely to weaken in FY24 to 4.4% from 7.5% in FY23. However this implies that second half would see marginal moderation in private consumption vs a significant one in government consumption. (Ex 2). Even though imports undergo slight moderation in H2 (13% in H2 vs 14% in H1), overall trade balance is expected to improve as exports turn positive from de-growth in H1 (Ex 2). Lately, Rural agri. wages have been growing in real terms, even market survey by Nielson indicates consistent uptick in rural consumption.

* Lower nominal GDP adds upside risk to FD target: It is pertinent to note that the first advance estimates forms the base for budget exercise, but is subject to significant revision. NSO’s lower nominal GDP growth of 8.9% vs budgeted 10.5% would add constraints to meeting government’s fiscal deficit (FD) target of 5.9% of GDP. Current Nominal GDP would imply FD at 6% or curtailment of spending by INR 370bn as per our assessment (Ex 3). However considering government’s comfortable fiscal deficit position in the first nine months (Apr-Nov’23) at 51% of FY24BE makes it that much easier to meet the target. Sluggishness is also reflected in Gross National Income, with a growth of 7.8% (INR 208,071) vs 15% in FY23, in USD terms GNI comes to USD 2506. Although slowing consumption is a cause of concern, however early signs of pick up in rural consumption, improving trade balance should cushion the economy going forward. We build in more realistic GDP growth expectation of 6.7% to 6.9% in the upcoming fiscal.

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